Dark Clouds for Gold Seem to Have Been Dispersed

According to a Bloomberg survey at a precious metals conference this week,
gold is poised for a 21 percent gain in 2012, extending its bull market to
12 consecutive years. Bullion may rise to $1,897 an ounce in New York by Dec.
31 from $1,566.80 at the end of 2011.

They have plenty of reasons for optimism, despite the recent drops in price.
Demand for gold has strengthened as Europe seeks to contain its debt crisis
and China has displayed a growing appetite for gold. Governments have kept
interest rates at all-time lows to shore up growth. Central banks have been
net buyers for three straight years, the longest stretch since 1973, according
to World Gold Council data.

They are not the only ones optimistic about gold. The specter of inflation
is making some turn to the yellow metal.

"By the time inflation becomes evident," says Paul Johnson of the $14 billion
Paulson & Co. hedge funds, "gold will probably have moved, which implies
that now is the time to build a position."

And just recently the Islamic Republic News Agency reported that Iran would
begin accepting payments from its trading partners in gold. This move further
reinforces the universal currency and store of value aspects of the metal.
Iran already allows its trade partners to pay in their native currencies. It
has also accepted payment in the form of goods from both India and China. It
will now take payment in gold. Fundamental situation is clearly bullish for
the yellow metal.

Let's turn to the technical portion with analysis of the gold to bond ratio.
We will start with the long-term chart (charts courtesy by http://stockcharts.com.)

A look at the gold to bond ratio provides us with the proper long-term perspective
in viewing gold's decline last week. Analysis of this chart suggests that the
bullish trend definitely remains in place, as no breakdown has been seen below
the long-term support line.

In the long-term chart for gold (you can click the chart to enlarge it if
you're reading this essay at sunshineprofits.com),
we see that the important support level mentioned in our essay on the possible rally
in gold (March 14th, 2012) has been reached. Quoting from the abovementioned
essay:

Last week saw several important developments as gold's price decline
approached the 50-week moving average while the RSI level remained slightly
above the 50 level. This is a bit ambiguous with respect to what likely
seemed to be needed for the final bottom to form.

In the past few days gold's price moved slightly below the 50-week moving
average and afterwards moved back above this level. In addition, the RSI moved
below 50.

These two signs defined the bottom seen in early 2007 and it appears that
the current bottom is already in at this time. Also, the possible correction
appears to have happened already.

Taking a look at the chart from 2006-07, we see that the major bottom seen
early in 2007 saw gold bottom half way between the 50% and 61.8% Fibonacci
retracement levels. Huge volume levels also accompanied this local
bottom. Furthermore, gold's stock prices visibly declined at the same
time and the RSI level moved close to but did not reach 30. Now let's
take a look at where we are today.

We now turn to the current short-term GLD ETF chart. Gold's price has declined
past the 50% Fibonacci retracement level but is still above the 61.8% level.
In fact, on Wednesday, gold's closing price was between the two and the bottom
formed on significant volume. Also, the RSI level declined close
to 30 and then moved back up. The situation is nearly identical to early
2007.

In our opinion, the striking similarities make our analysis this week quite
reliable. Many factors are very much in tune and it is likely that this pattern
will hold for the next couple of months. Keep in mind that it may take a week
or so for the rally to really get underway.

Some might say that the bearish head-and-shoulders pattern is visible to some
extent but a closer look reveals that this is not really the case. The shoulders
are not really symmetrical. In early 2007, the pattern was even more visible
and the target level based upon it was lower than the actual bottom that was
formed. With the pattern less visible this time, and so many other factors
aligned perfectly, it is likely that the bullish implications here will prevail.

In this week's chart of gold from a non-USD perspective, we have a confirmation
of the bullish outlook we have seen in the previous charts. Another move to
the downside target area, which was reached last week, has been seen and it's
likely that a double bottom will form and the ratio will then move higher.
The breakout above the declining resistance line (based on 2011 tops) has been
well verified and it seems that now is the time for the rally to begin.

Summing up, the situation in gold remains very bullish for both the
short term and long term based on this week's charts.

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Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who
takes advantage of the emotionality on the markets, and invites you to do
the same.

His company, Sunshine Profits, publishes analytical software that anyone can
use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem
that may never be solved, PR has changed the world of trading and investing
by enabling individuals to get easy access to the level of analysis that
was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are
results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals
sector. For that reason it is his main point of interest to help you make
the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for
professional excellence and ethics for the ultimate benefit of society.

Disclaimer: All essays, research and information found above represent
analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates
only. As such, it may prove wrong and be a subject to change without notice.
Opinions and analyses were based on data available to authors of respective
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